Here is part 2 of the Guide for 1st time home buyer’s series. Click here for part 1.
5) Negotiate the Contract
So you finally found your dream home. You can picture yourself living moving in, and the feeling of finally moving in to your new place. On to the next step, making the offer! This is where that realtor (who, once again, you don’t have to pay) comes in handy. They should have looked at the comparables (or comps) for this property to let you know if the price is either a good deal or overpriced.
Also, it is important to know what how the real estate market is. In the Chicago area, it is currently a seller’s market simply because the housing inventory is low. (stats for Chicago real estate) For the buyer, that means that this is not the market to try and submit a low-ball offer. The sellers are also working with professionals, so they know they can afford to sit on a home because their home is in demand. Therefore, you should have a talk with your realtor to make sure you are making a fair offer. It is ok to submit an offer lower than the listing price, but try not to push it. There is not a worse feeling in the world than to find out you lost out on a home to another bidder, when you would have been willing to offer more money.
When a home does have another offer on it (or multiple offers), the sellers may come back to you and ask you to submit your highest and best offer. In this situation, I always recommend to my clients to sit down and think of the highest price they are willing to pay for the property, and leave it on the table. Now is not the time to bluff the seller, as this is may be your last chance to get the property. That way, even if you do not get the property, you did the best you could, so you won’t have any regrets. It is very sad to see home buyers put a halt to their home search because they are distraught and frustrated about the home they lost. So, as they say in sports, leave it all out there on the field, and let the cards fall where they may.
6) Attorney Review/Inspection Period
Once you and the seller agree on the price, congratulations! Take a minute to feel good for yourself! After that minute is up however, we begin the next stage of the process, which is the inspection period and the attorney review. I know that some markets do not use attorneys when buying and selling real estate, but is customary to do so in the Chicago real estate market. Although it is not required, I would definitely recommend that you get one. The other side most likely will also have an attorney, and the money that you spend is definitely worth it to cover yourself.
Our standard contract in the Chicago area gives you 5 business days for the attorney review and inspection period (this also may vary for other areas). This is the time where you get your inspector over to the home to go through the home with a fine-tooth comb. Inspectors can also be very informative in showing you things about the home that you may not have noticed before, so it is always recommended that you go along with the inspector. Once the inspection is completed, the inspector will provide you with a report of all their findings.
An important thing to remember is that the inspector will be very thorough, so do not be surprised if the inspector comes back with a long list of items! It doesn’t mean that the home is going to fall apart. Go through the list with your attorney and your realtor to determine the items that you may want repaired. Once that is decided, your attorney will send a list back to the seller, which starts the second round of negotiations. You though the negotiations were over once the original contract was signed, but it simply isn’t true. However, it is important to note that if you and seller do not agree on the repairs, it is possible to back out of the contract, with no cost to you (besides the money you spent on the inspection). Therefore, you should not feel like you are trapped once you sign the original contract. Also keep in mind that the seller may not want to do any of the repairs. The home may still be a good deal, to try to keep emotions out of it as much as possible. Even if the seller is a jackass who won’t fix anything, remember that you won’t have to deal with them ever again once you close on the home, so who cares what they think. Make the decision that is best for you.
7) Appraisal and Underwriting
Once all the terms of the second negotiation are agreed to, your mortgage lender then has to get the property appraised. If you are using an FHA loan, this is where the FHA does their own inspection of the property to make sure it meets their guidelines. If you have made this far, you have been through the worst of it, but you are not out of the woods yet. To explain it simply, the appraisal is where the bank determines if the home is worth the money that they are lending out to you.
The fact that your realtor researched comparable properties that have sold in the area should shield you from anything bad. However, there are times where the appraiser doesn’t think that the home is worth what you are planning to buy it for. If this ever happens there are usually two main choices. The first choice is that the seller has to lower the price down for what it appraised for. This is the most common choice because if the appraisal price is the highest price the seller is going to be able to get for it. The second choice would be for you, the buyer, to pay the difference between the appraised price and the agreed to price. I would not do this on most occasions.
After the appraisal, your file then goes into your mortgage lender’s underwriting department. Underwriting is where they check all of your paperwork and let you know if you are missing anything. Underwriting can be pretty picky, so do not be surprised if they ask you to sign new documents or correct old documents. Once your file makes it through underwriting, you will receive your clear to close, where you will receive your closing date.
8) Final Walkthrough/Closing!
Now we are nearing the finish line! Once you receive the clear to close, you should schedule your final walkthrough of the home, which is usually done either the day before or the day of the closing. The important thing to remember about the final walkthrough is that you are only making sure that the home is same home it was when you signed the contract on it. It is to make sure that nothing catastrophic happened to the property between the last time you seen the property until now. It is too late to try and make more requests if see some small things wrong with the home that was not apart of the inspection period negotiations. Some buyers may start to notice things like that because of cold feet, but try not to worry. That is why you had a professional to inspect the property with a fine-tooth comb. If you found something you thing is wrong with the property, chances are it was not worth mentioning in the first places. Now we get to the final stage, which is the closing table. From here, your attorney will walk you through the ton of paperwork you have to sign for your mortgage. Once that is complete, you wait for your lender to receive the paperwork and transfer the money. Once that is complete, you will receive the keys to your new home! From there, feel free to have that moving truck you had on standby all morning start to bring your stuff inside!
Feel free to let me know any questions or comments you may have. Thank you and have a great day!